Q1 2023 Brunswick Corp Earnings Call
Good morning.
And welcome to Brunswick Corporation's first quarter 2023 earnings Conference call all participants will be in a listen only mode until the question and answer period.
Today's meeting will be recorded if you have any objections you may disconnect at this time.
I would now like to introduce.
They know how Clark senior Vice President Enterprise Finance, What Brunswick Corporation. Please go ahead.
Good morning, and thank you for joining US with me on the call. This morning are Dave Foulkes, Brunswick's, CEO and Ryan Guillaume <unk> CFO .
Before we begin with our prepared remarks, I would like to remind everyone that during this call. Our comments will include certain forward looking statements about future results.
Please keep in mind that our actual results could differ materially from these expectations.
Telephone these factors to consider please refer to our recent SEC filings and today's press release all.
All of these documents are available on our website at Brunswick Dot com.
During our presentation, we will be referring to certain non-GAAP financial information reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results.
I will now turn the call over to Dave.
Thanks, Nate and good morning, everyone.
We started the year strongly delivering a record first quarter net sales of more than $1 7 billion.
<unk> operating earnings of $262 million.
Our business continued to leverage our investments in new products technology and innovation across the enterprise.
High horsepower outboard manufacturing capacity premium boat manufacturing capacity.
While taking significant actions to reduce structural costs in the macroeconomic environment continues to be challenging.
Our first quarter adjusted earnings per share of $2 57.
Highlights the robustness of our business and the strength of our portfolio.
That wouldnt notable divisional highlights, including our propulsion business delivering outstanding net sales adjusted operating earnings and operating margin.
And our bulk business delivering double digit adjusted operating margins for the fourth consecutive quarter.
Despite the increased promotion and discounting on certain product lines.
Both field inventory is at an appropriate level in most categories going into the core retail season.
And we exited the first quarter with 21500 global pipe on units.
Our boats and LNG production levels finished above prior year, despite some supply chain challenges.
We made significant gains in free cash flow, improving 55% versus first quarter 2022 lots.
Largely driven by working capital improvements across the business.
In addition, as the overall market and the largest recreation sector continued to see valuation pressures, we continue to be aggressive with share repurchases executing $60 million of repurchases in the quarter.
Yeah.
Okay.
Before I move into the segment overview, let me provide a reminder, regarding our recently updated segment reporting.
We updated our reportable segments from three segments to for.
Propulsion and parts and accessories.
<unk> group and boat.
The previous parts and accessories reportable segment is now split into the engine parts and accessories segment, and then medical group segment.
The engine parts and accessories segment is inclusive of products comprised of parts and consumables primarily related to our propulsion systems, such as oils and lubricants electrical products on both parts and systems.
With our third party distribution businesses.
The Napa Ko group segment now represents the organizational integration between the legacy Defense systems group business with two key acquisitions that were completed in late 2021, now that coal and rely on.
We determined this was the right time to change our reportable segments. Given the continued integration of the <unk> business and the significant restructuring actions completed in early 2023.
We feel that change will provide better visibility into our company and more closely aligned with our internal operating structure.
With that background, let me now turn to some of the segment highlights the facilitated a very strong first quarter. Despite the record prior year comparison.
Our propulsion business continues to deliver outstanding results with 7% topline growth versus the first quarter of 2022, driven by increased shipments of high horsepower outboard product to many international customers and OEM partners enabled by the recent manufacturing capacity expansion.
The increased shipments of high horsepower products combined with reduced production of lower horsepower products drove strong product mix, which when coupled with operational efficiencies resulted in record first quarter operating earnings and an operating margin of 20%.
Our engine parts and accessories business had a solid quarter, but as anticipated experienced sales and earnings declines versus the record first quarter of 2022, although up 35% versus the first quarter of 2019.
U S product sales were ahead of first quarter 2022, well a third.
Third party distribution businesses were down versus 2022, as dealers and retailers right sized inventories.
As foreseeing, an advocacy group had a challenging start to the quarter with lowest sales into the retail channel.
Oems and unfavorable currency, leading to topline declines early in the quarter with notable improvements in March.
Operating earnings declined versus prior year, as lower sales, coupled with higher material inflation and temporary margin pressures related to a new product launch were partially offset by the positive impact of major integration and restructuring actions and cost reduction measures.
<unk> group announced the closure of nine locations and completed headcount reduction actions begun in Q3, 2022, which impacted approximately 10%. So it didn't have a core group workforce.
Finally, our book business posted robust topline growth enabled by broad based gains across categories.
Both segments delivered strong earnings growth with double digit adjusted operating margins for the fourth consecutive quarter despite higher discounts.
Finally freedom boat club had strong same store membership sales in the quarter and also benefited from acquisitions completed in Q2 2022.
Freedom's growth trajectory continues with more than 380 locations and nearly 55000 membership agreements covering 87000 members network wide.
Well generating exceptionally strong synergy sales across our marine portfolio.
Looking at external factors cost inflation and interest rate increases have moderated Oh will remain a challenge for buys a value product.
With boat loan rates recently stabilized between 8% to 9% versus 5% to 6% immediately pre COVID-19.
Our supply chain environment is broadly significantly improved however, and industry wide supply of pot recall impacted a large number of a stern drives fiberglass units in production and in dealer inventory in the quarter.
It was partially remedied in the quarter and we expect it to be fully remedied in the early part of the second quarter, but it may impact Ssi through Q2.
As we wrap the bulk about boat shows results were better than expected with sea Ray and Boston Whaler in particular reporting strong sales and lead generation.
Mercury continued to have record share of badges displayed on boats at the shows and in many cases, such as the recent Palm Beach International boat show had more than 60% share.
We believe these shows are a good signal of consumer interest, particularly in premium products.
Our internal bunch of sentiment survey suggests both participation and purchase consideration are above prior year.
With Google search trend slightly down.
Additionally, freedom boat club is experiencing higher trips for member versus prior year.
Discounting is present, primarily on value models, but still below pre COVID-19 levels in most cases, while the percentage of boats being financed the point of sale versus all cash transactions is lower than in 2022.
Soon to levels similar to 2019.
From a dealer standpoint inventory levels are healthy and very current is ahead of the season.
Considering the higher dollar value of inventory. In addition to the number of units in many cases, however orders remain on track with no signs of material wholesale cancellations.
Dealer sentiment reflects macro concerns, but remains cautiously optimistic as we move into the peak season.
Shifting to a global review of revenue overall, we delivered 3% sales growth on a constant currency basis, excluding acquisitions led by gains in our propulsion in both segments.
Our two largest regions the U S and Europe grew sales in the first quarter versus the prior year quarter by 5% and 2% respectively.
And rest of world experienced significant growth driven primarily by increased sales of high horsepower outboard engines in those markets.
Moving now to the U S retail performance, our internal new boat unit retail data reflected sequential improvement throughout the quarter with declines in January and February shifting to growth of 4% versus prior year in the month of March.
For the quarter, our internal new boat retail unit sales finished slightly better than expectations declining 10% versus the first quarter of 2022.
Overall premium segments continued to perform well.
Value fiberglass models experienced some pressure.
Our aluminum brands had particularly strong internal retail performance as our planned promotions and marketing helped drive early season retail activity.
Note that the preliminary first quarter Ssi main powerboat data released earlier this week reflected a roughly 20% decline from 2022.
GAAP versus our internal data, which may close as industry reporting becomes more complete in the coming months.
Outboard engine industry data was favorable with a U S industry registrations, finishing up 12% for the month of March versus prior year and down just 2% for the first quarter versus first quarter 2022.
Mercury performance continues to reflect gains in high horsepower with over 600 points of retail share gain and the 150 horsepower engines and above categories. During the last five years.
Okay.
Turning to pipelines U S unit inventories generally well balanced as we enter the core retail selling season.
And remains thousands of units below pre COVID-19 levels.
As expected the pipeline of aluminum product has replenished to a normalized level.
While the fiberglass inventories also restocked well premium fiberglass inventory remains more lean for some product lines.
Our brands have done an excellent job getting out many exciting new products to our dealers ahead of the prime 2023, selling season generating very positive momentum coming out of the early season boat shows.
We also have appropriate programs events discounts in place going into the primary selling season, and we will continue to monitor and respond as needed through the coming months.
I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.
Thanks, Dave and good morning, everyone.
The project delivered an excellent start to 2023 with record sales and EPS for any first quarter in our history.
When compared to prior year first quarter net sales were up 3% and adjusted EPS of $2 57 increased by 2%.
As anticipated adjusted operating earnings and margins were down slightly year over year, but both results exceeded our expectations for the quarter.
Sales growth resulted from steady demand new profit performance and pricing implemented in previous quarters, partially offset by unfavorable changes in foreign currency exchange rates.
The steady earnings and margin performance benefited from the net sales growth and prudent cost containment efforts offset by elevated input costs versus Q1 of 2022 and spending on growth initiatives.
Lastly, although we are always in a net cash usage position coming out of the first quarter as we prepare for the primary selling season, our free cash flow improved by $135 billion from Q1, 2022, primarily due to less working capital usage.
Now, we'll look at each reporting segment, starting with our propulsion business, which delivered yet another quarter of outstanding top line earnings and operating margin performance.
Revenue increased 7% versus the first quarter of 2022 as higher sales were driven by continued increase sales of high horsepower outboard product, which more than offset planned reductions in smaller horsepower and stern drive value.
Operating margins were up 230 basis points and operating earnings up 21% each enabled by the increased sales and manufacturing efficiencies.
Note that segment margins and earnings also included a benefit associated with the timing of capitalized inventory variances.
This benefit will reverse in the second quarter and have no net impact on your expected for your results.
Our engine parts and accessories business delivered a steady quarter with sales down 13% versus 2022, but up 35% over the first quarter of 2019.
Sales of our U S products business increased by 1%, but were offset by softness in international markets and in our third party distribution business.
Dealer and retail inventory levels are appropriate to start the season and contrary to early season, 2021, and 2022, where dealers are scrambling to take all the inventory that could get due to supply chain concerns normal restocking patterns have returned and we anticipate normal seasonality in this business.
Earnings and margins were down in the quarter as anticipated with two additional drivers in addition to the sales declines.
Year over year material inflation created a challenging comparison to Q1 2022 as this business saw most of its input cost increases in the <unk>.
Second quarter of 2022, leaving the first quarter of 2022, and a much better cost position.
Second we continue to transition our primary distribution hub from father, Lac, Wisconsin to our new state of the art facility in Brownsberg, Indiana, resulting in elevated costs in the first two quarters of the year due to running both facilities to ensure sufficient product supply to our customers and the start of the boating season.
Our <unk> group performance was similar to engine P&A with sales down 11% in the quarter.
Sales to marine OEM customers were flat off a historic first quarter 2022, with aftermarket channels down low teens percent due to the same restocking dynamics I mentioned on the last side.
Unfavorable FX impacts and a sharp reduction in sales to RV manufacturers due to the first quarter production shutdowns also contributed to the lower sales in the quarter.
Note that point of sale retail remains solid across the retailer channel with strength driven by new products, including the HTS Pro which was launched in February and has already proven to be extremely well received in the market.
<unk> group earnings and margins were also negatively impacted by material inflation versus Q1 of 2022.
Temporary margin pressures related to a new product launch and unfavorable FX FX impacts.
But were helped by reductions in operating expenses as planned restructuring actions take hold as Dave discussed earlier.
Okay.
We thought it would be helpful to provide some additional information on the various factors impacting our engine P&A and Africa group businesses.
As anticipated the first quarter was challenging due to historically strong comparisons to 2022, but we believe the remainder of the year remains materially on track as initially planned in January .
This chart shows the first quarter, earning factors I discussed on the two previous slides. It also shows our thoughts on how we believe these factors will impact segment earnings for the remainder of the year.
We believe retail and dealer stocking patterns will continue to be the most significant factor impacting earnings, but also believe that stocking patterns should improve to the boating season and into the off season and holiday season.
Inflation and currency impact should moderate throughout the remainder of the year as the first quarter had the toughest year over year comparison.
The impact of the distribution center transition is only an engine P&A factor and should only impact one more quarter, while the impact of the RV manufacturing, which is only a high single digit percent of sales for these businesses is expected to improve during the remainder of the year as RV production has already restarted.
There are many moving pieces in these segments, but as boating participation continues to be healthy. We believe these transient earning factors will ultimately be resolved showing the resiliency of the earnings power of these segments.
Our boat segment had another fantastic quarter, delivering strong top line and earnings growth together with double digit adjusted operating margin for the fourth straight quarter.
The boat segment reported a 17% increase in net sales and a 27% increase in adjusted operating earnings in the quarter.
Segment operating earnings and margin growth were enabled by the increased sales together with positive product mix.
And from the substantial completion of production ramp up activities and our new Boston whaler facility parse.
Partially offset by continued cost inflation and higher discounting levels versus the first quarter of 2022, although discounting levels do remain lower than historical norms.
Freedom Boat club, which is included in business acceleration contributed approximately 6% of the boat segment's revenue during the quarter as it benefited from acquisitions completed in the first half of 2022, which will be substantially lapped the beginning next quarter.
Our 2023 outlook remains materially unchanged, while our first quarter performance provides a healthy start to the year, we're going to continue to be prudent with spending and cost actions in future quarters without sacrificing investments needed to drive our strategic plan.
And we remain optimistic on our ability to continue delivering historically strong financial results for our shareholders. Despite a turbulent macroeconomic climate.
As a result, we are reiterating our anticipated full year revenue and adjusted EPS guide as well as holding our operating margin and Opex cadence.
We're off to a good start with free cash flow generation and while we have not changed the full year guidance. We expect to see continued positive movement due to primary retail season.
Finally, we anticipate a solid second quarter with revenue flat to slightly above Q2 of 2022, and adjusted EPS between $2 60, and $2 70.
Our full year segment outlook remains mostly unchanged as well with small adjustments to reflect first quarter performance and market conditions, along with providing updated guidance for our new engine P&A and advocacy group segments.
For propulsion, we've raised the bottom end of the guided margin range reflected continuing operating strength Mercury.
We have also raised the bottom of the boat segment's revenue guidance as relatively steady retail performance. Thus far in 2023 should support continued wholesale balance throughout the remainder of the year.
The new guidance for our engine P&A and advocacy groups segments look similar to the former aggregated P&A segment guidance to start the year.
And exit P&A, we anticipate flat to slightly down revenue versus prior year, primarily anticipating softness at our third party distribution business with operating margins plus or minus 30 basis points for the prior year.
At <unk> group, we anticipate flat to slightly increased sales versus 2022, and despite a challenging start in the first quarter believe full year operating margins will also be similar to prior year.
Lastly, we are a small handful of full year assumptions that we have updated.
First given our strong cash performance and continued market and project share price dislocation, we are increasing our repurchase target to exceed $200 billion of repurchases for the full year.
Accordingly, our average diluted shares outstanding should be slightly lower for the year at 71 million shares.
Finally, you would've seen that we increased our annual dividend in February to $1 60 per share the 11th year of dividend increases, reflecting the stability of our operations portfolio makeup and overall financial performance.
Please see the appendices to this presentation for additional information on other P&L and balance sheet assumptions for the year.
I will now pass the call back over to Dave for concluding remarks.
Thanks Ryan.
Before we close out I wanted to share an update on some recent awards and recognition for our company brands products and people.
We were delighted to be named by Newsweek towards 2023 list of America's most trustworthy companies, but we ranked in the top 20 companies within the manufacturing and industrial equipment category.
We will also again named by Forbes as one of America's Best large employers ranking second in the engineering and manufacturing category.
In addition, we won a record number of product and innovation awards in the first quarter and look forward to winning many more during the balance of the year.
On the subject of sustainability 12 of our facilities have now earned zero waste to landfill designation with more planned this year.
And combined they diverted 9 million pounds of waste from landfills in 2022.
MSCI ESG rating was improved from triple B to a a reflection of our dedication to conducting our business sustainably.
We were recognized by sustainable it takes the top rated company for ESG, both in the region and industry.
These and many more developments and sustainability will be documented in our 2022 sustainability report, which is scheduled to be released shortly.
Turning now to innovation are key to our future and one of my favorite topics to highlight we've had an outstanding start to the cross sell businesses.
Earlier this year, we launched the Mercury outlets electric outboard family and recently the first group of Avatar seven five E electric outputs shifting to global customers.
This award winning product the first of a large family of electric products. That's been met with an outstanding reception from customers and supports our commitment to being the industry leader in both internal combustion products and electric propulsion.
The recently launched Mercury Vita in outboard engines at a strong presence in the key boat shows during the quarter and have seen very strong demand.
We also launched the exciting new Mercury racing version of the engine the 400.
At the Miami International Boat show.
Expect more exciting product news for Mercury in Q2.
In addition to the Fathom two E power system, our <unk> group launched its new state of the art fish finder, the low run HTS pro and demand in the initial weeks since launch has been very strong.
We also debuted the next generation <unk>, two <unk> with New Sea Ray design DNA.
Powered by Mercury engines, and with NAPCO Group Electronics. It's another Great example of cross divisional synergies and technology.
Switching Brunswick, and our customers and consumers.
Building on the success of its award winning M series boats.
Unveiled the all new elements at 119 at the Miami International Boat show.
The <unk> 19 is an outstanding boat, which delivers on the versatility of this series is known for with a focus on expanding both the participation. So it's intuitive design ease of maintenance and affordable price points.
Freedom Boat club continues to advance its presence globally with the recent expansion into Australia.
Three additional locations were recently announced providing direct access to water waste in north Sydney.
As we begin the process of expansion in the Asia Pacific region replicating the successful model in North America and Europe .
Thank you for joining the call that concludes our prepared remarks, we'll now open the line for questions.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Due to the interest of time, we ask that you limit yourselves to one question and one follow up one moment. Please what we call for questions.
Our first question comes from the line of John <unk> with BNP Paribas. Please proceed.
Hi, guys. Thanks for the questions maybe to start can you talk about the strength in the engine retail outperforming maybe powerboat retail by so much is it really the repower businesses starting to offer.
What's going on there.
How are inventory levels from an engine perspective.
Yes. Thank you for the question.
Yes, a couple of things that impact kind of the difference if you like between our board retail and on boat retail certainly you mentioned some of them that we have.
Been able to service some of the aftermarket channel suddenly the dealer channel.
So more we have very strong demand for high horsepower in particular and that has been.
Lean in the aftermarket channel International as you saw also was.
With strong we're getting more boats with multi engines. So that is part of the difference as well and you also saw that stern drive product is down.
Down for the quarter. So we're getting some mix away from stern drive product and towards output product. There is also some latency in the week.
Don't typically.
It's all been a quarter or a month, but those are some of the major factors.
Okay helpful. Thanks, and then maybe just on the engine P&A.
When you talk about the retail stocking level.
I guess can you remind us how it how it usually works.
Use it usage starts to pick up maybe in the season, the retailers start to sell through and then they reorder.
When should we start to see that and are you seeing any kind of pickup in sell through maybe in March April .
Yes. So we are seeing some pickup in sell through in March April normally the stocking.
A bit more of a seasonal pattern that it did last year and to some extent even the year before so it's typically an inventory build ahead of the main season.
But what happened last year was with the supply chain.
Disruptions.
Retailers with just stocking everything they could so there was a more of a.
Phase advance really with between the wholesale restocking in the season.
Now we have more product availability in the supply chain is less disrupted we expect it to follow more of a seasonal pattern I think the exciting thing for us is that.
New products are still <unk>.
Being demanded wholesale and selling through strongly at retail. So we saw for example, never close new HTS pro product from its lower on <unk> brand, which is its most important brand.
<unk> begin to be demanded very strongly at retail and sell through that wholesale.
Wholesale and sell through very quickly at retail. So this is not just <unk>.
The uniform phenomena, if you can get the right product and that you can get good wholesale orders and good sell through and overall I would say that the kind of destocking or right sizing of inventories as is occurring.
So we're optimistic of the season and the only thing I would add to that is that our U S products business was actually up in the quarter and so kind of your reliable annuity based P&A sales that we talked about pretty regularly.
Showed that here in the quarter.
Awesome.
Okay.
Our next question comes from the line of Joe <unk> with Raymond James. Please proceed.
Hey, Thanks, guys. Good morning, I guess first question on both trends.
You mentioned that improved significantly.
Quarter progressed, particularly in March we did not see that obviously.
And the industry trends, so what's driving that dichotomy if you will.
Hi, Joe, Yes, it's always a little bit difficult to pinpoint these things, particularly at this point in the season, but I would tell you that registry.
Dealers are.
Preparing for the season that very busy doing a lot of things. So we tend to get.
Registration is coming through in a bit of a hockey stick through the month.
And then also of course asset side doesn't have a full complement of states reporting yet. So we assume that these are industry reporting delays were obviously sure about all registrations.
There may be also.
Some renewed strength I would say in aluminum.
Versus some of the earlier parts of the year and the end of last year, I think where our marketing and promotions came through pretty strongly for us there may be an impact.
With some of the states that are reporting.
But normally over.
A period these things converge competent in our numbers and excited about the <unk>.
Trent.
Got it that's helpful and maybe a second question on the second quarter Guide.
It looks a little bit below what we were expecting.
Any puts and takes or pull forward that we have to think about that moving to <unk>.
How much is how much did the timing of capitalized inventory.
Impact propulsion profit.
Hey, John I'll take this one yes, that's a good place to start it's about a dime so Bob.
On the Capex variance issue. So the good guy in Q1 that will reverse in Q2, so that's part of it.
The rest of it I think it's just normal seasonality I think comparatively to last year Youre, just going to see more normal sell in sell out.
Whereas last year, we saw like data center, and they're just a real rossouw of restocking in our PMA business.
But otherwise Theres no real fact, there's still still looking for growth on the topline rate flat slightly up.
With strong pull through on the EPS line.
Our next question comes from the line of Mike Swartz with true Securities. Please proceed.
Hey, Yeah, Hey, guys. Good morning, just a quick question following up on the retail I think in prior calls you had mentioned in your kind of outlook for the for the year was for industry retail to be down high single digits. Obviously, it was down more than that in the first quarter.
Particularly for the industry.
Do you change that you for the full year.
Good morning, Mike No, we Havent really changed the view for the full year. Obviously, we're super early in the season still March is beginning to be more important but.
As we go into second quarter, we will understand a lot more of how things are going I would say just across the industry.
Actually pretty pleased about the resilience of the consumer so far.
Clearly looking for promotions, so that shopping around more but there is no there isn't a sense in which they are really backing away in large numbers. The behavior is just more normal.
So theres nothing really that would suggest that we should modify our expectations for the balance of the year at the moment.
We think we have the right products and we're very excited about the new products that we've launched which is always generating excitement.
We have the right promotions in place we have the right events in place. So early in the season, but no reason to change our perspective and Mike as you probably know the first quarter comps were the toughest so as we go throughout the remainder of the year I mean, we're kind of right in line, maybe a little bit better than where we thought we'd be here three quarters at three <unk>.
Then.
Okay helpful. Thank you guys.
Just a question on the propulsion margins I think this is the second time in history, you guys have done over 20% in a quarter I'm just trying to understand is that.
Is that sustainable given some of the puts and takes that are going on obviously high horsepower is doing well lower horsepower production, probably coming down a bit and then you have the capitalized inventory benefit in the first quarter. So I'm just wondering how.
How much temporary benefit did you get from that in the first quarter and then how do we think about that going forward.
It was a very strong quarter.
Although there were some.
The timing benefits associated with those variances I would say overall, we have a long history now of expanding propulsion margins on a pretty secular basis.
And as you would have seen in many people on the line has an opportunity to see our <unk>.
Newly installed capacity is extremely efficient and automated.
That is a continued march for us.
So yes, we have a lot of I think very strong.
Secular trends that are supporting increased propulsion margins.
Although they were assisted a little bit in the quarter, but no I think that this is a good trend that can be sustained.
Our next question comes from the line of James Hardiman with Citi. Please proceed.
Hey, good morning, So just a point of clarification the difference between.
The Ssi being down call it 21% for the first quarter.
And your internal numbers, suggesting down can you.
Do you think thats more an issue of the industry number is wrong, rather than you're just gaining that much share in the first quarter and the reason I ask that.
Paul as we thought about sort of your <unk>.
Industry or your benchmark for retail.
Thank you were assuming a ton of market share increases this year. So I don't know if I should think about sort of your flat to down.
Low double digit sort of range.
In the context of your guidance any differently based on what we saw in the first quarter.
Yeah, Hi, James I would say, we were assuming some market share increases in select segments.
So it is possible that some of that.
Differences associated with market share increases if it is I mean, we know the sea Ray and whaler had a strong start to the year, we saw that clearly in boat show results.
We had some good strength in aluminum product in March in particular, which is.
Very nice to see market share is very unlikely to be the full reason for that.
Absent show difference there I think more likely to be the major component is the fact that we're in a period of acceleration.
Early in the season.
It's probably more about the amount of.
Retail registrations that have been captured in the industry data and which states are reporting.
So I don't think anybody it's just a.
Short period of time between the end of the month, so we get the Ssi data and clearly they identify that there are those.
Partial reporting.
Got it that makes sense and then I guess along the same vein you talked about how your dealers are cautiously optimistic obviously your biggest dealers just lowered guidance. This morning, they're looking for a double digit.
Decrease in retail this year.
Maybe connect the dots if there are dots to connect I know that there.
Fiscal year is different than the calendar year, we're talking about and I would assume that the fourth quarter is probably going to be the best quarter from a retail perspective, just based on the comps, but how do we how do we connect what what on the on the face of things right. The headlines seems to be pretty disparate outlook here.
Yes, I think the couple of things to think about us.
Okay.
<unk>.
Marine Max does not state, specifically, which brands are selling well and which ones are not selling well.
No we had good sales through marine Max of the brands for which there are channel partner.
Whaler and CRA, both had a strong start to the year.
And then marine Max overlaps a portion of our <unk>.
Portfolio, but not all of our portfolio.
So that's a potential source of difference there it's really.
We overlap just on a couple of our brands. So it's difficult to exactly compare that view of the world with.
Our view of the world.
I would say that our premium brands.
Probably performing ahead of the market at the moment.
Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed.
Hey, guys I just wanted to follow up on that disconnect between the internal registration data and what we're seeing from Ssi I get it for <unk>, but if we look at the March numbers, specifically, I mean down 20% versus.
Low to mid single digits is kind of a different story so.
Is that was there anything specific in March like did things get better in March per year data and into April .
It seems like we're kind of getting some mixed signals on the retail side.
Yes, I agree with the fact that we are getting some mixed signals on the retail side and we can report obviously only our retail and obviously there is partial reporting of the industry.
Our retail has sequentially.
Sequentially improved through the first quarter.
So.
Im not entirely sure what the source of the disconnect is but I would say that once again retail registrations tends to come in somewhat late in the month and late in the quarter. So if there is a.
Delay in reporting or partial reporting of end of quarter retail, we would likely capture it and they may not.
That's about the best I can.
Say at the moment things will become clearer as we go more into the second quarter.
Things stabilized, which has been a period of extremely rapid sales acceleration at the moment. This is the inflection point in the quarter as you go through March and into April and Fred just as a reminder, percentages here. We're talking a couple of hundred units give or take on a various brand right because of where we are in the early part of the season. So it doesn't.
A lot.
Two.
To move the numbers, especially I'd emphasize only reporting 52% or so a little bit over the over half.
This saves.
Yes, Okay, that's fair, but I guess to summarize Dave what you were just saying the inflection that you saw throughout the quarter that trend has sort of continued into April .
Yes, I think we're seeing a good solid trend once again, we will get a better view of April after we get out.
Through the four month, but I would say that we continue to be encouraged okay. That's fair and then you guys also made some comments about <unk> improving in March was that just a comment about some of the inventories getting worked down was that a comment on consumer takeaway what exactly did you mean there.
Yes.
<unk> Medical's op margin for the month is about 11% as we went March was in the kind of.
Mid teens I would say.
Low to mid teens, which is more consistent with the full year trends from last year, we actually a couple of things that are coming through from <unk> at the moment, obviously, we took a lot of restructuring actions.
Which affected mainly.
Large versus the early part of the quarter and actually the full effect will only be felt.
Subsequent.
Some quarters.
And then we had a.
When we launched the <unk>.
HTS pro which is a big product for us.
The ramp up was slower than we had expected and we ended up in a situation, where we're replacing a lower.
Lower margin product, but we would discounting out.
With a higher margin product with no discounts, but it just happened slower than we anticipated.
<unk>.
Essentially we're in the market with a lower margin product that should have been replaced.
Our higher margin product and now that launches complete we would expect that full impact to flow through in Q2.
Our next question comes from the lineup Eric Wold, a private investor. Please proceed.
[laughter] still would be rallies securities.
Yes.
[laughter].
So two follow up questions I guess, one on the propulsion.
Capacity expansion now being complete.
Get us on where you are with.
Lead times.
On the higher end products versus where you ultimately want to be maybe you kind of towards the end of the year.
Yeah.
Yes, I think as we.
<unk> gone into the quarter, we've really now kind of shaken off the few remaining.
The supplier constraints that we would.
Continuing to have to deal with we feel in good shape. Both internally in terms of operations that also are well supported by the supply base now with a really good flow of product. So we feel good we're working through.
Making sure that we fully supply our existing OEM customers and we are beginning to prepare to take on.
New Oems and that transition is.
Are they occurring and we will begin to be seen more clearly as we go into the model year. So yeah. It's good.
Good.
Progress with improving delivery, particularly of the high horsepower engines.
And I think we'll be in really good shape as we get into Q2 to take on those additional OEM customers and continue to supply aftermarket channels.
Perfect and then.
Follow up on the on the engine P&A segment, I guess aside from the retailer returning to kind of a more inventory re stocking patterns and you've talked about C.
Retail sell through kind of improving in March and April anything you can drill down and just how much data you can see when a real time basis, but can you.
To drill down into what is selling through this.
You talked about kind of upgrade.
Maybe.
Nice to have products that people are adding on a boat or you see any kind of shift in purchases of.
Deep maintenance and replacement products are indicated people are kind of holding onto boats, a little bit longer maybe kind of waiting on replacements.
Yes, well as Brian mentioned earlier on the engine P&A side, we were actually up slightly on our product sales in Q1 of this year versus Q1 of last year and those are the kind of products that you mentioned that but more essential maintenance or.
Brake fix type.
Products. So clearly given the fact that last year in the first quarter of last year in particular was a banner quarter in that area. It's great that we comped really well in that area.
We've definitely say that.
The.
Kind of willingness to restock depends to some extent on the product category.
But.
Technology related products continue to be extremely strong we've said before that.
People are willing to hold a vote a bit longer but they don't really want last year's electronics on it. So when we launched the HTS pro from.
Laurence.
We were extremely pleased the pull through was really strong if you have a superior.
Product.
<unk> going to get pull through right now, especially as we go into the season, we talk about.
<unk>.
Saltwater shows a lot because it correlates really well with high horsepower.
But.
One of our pro Anglos, Jeff Gustavson, Who's our Lund Pro Ana.
Our Mercury Pro won the best mass does this year.
With our Lund boats and with a mercury engine on the back of the why is that relevant while the top of the top 10 finishes.
<unk>, we are powered by Mercury and seven had lower on electronics, so those kind of events like the Super Bowl events of.
Freshwater fishing, they attract a lot of attention.
File with tens of thousands of people attending those events looking at the Mercury engines and looking at the lower on selling products on those boats and they will get a lot of traction and pull through so very excited about the kind of technology that we're bringing to market.
And it really is getting a strong pull through.
I think technology is being pulled through and of course as you mentioned earlier about.
Consumables and kind of break fixed parts.
We'll continue to get pulled through.
Our next question comes from the line of Scott's timber with MK partners. Please proceed.
Good morning, and thanks for taking my questions.
If you are welcome.
Going back to engine P&A.
Could you talk about the POS I know you said it was improving in March and April but was it up.
In the first quarter.
Yes, Scott we don't we don't have the accuracy necessary for that for that kind of answer to be honest, we get bits and pieces of information from certain of our channel partners, but not enough to know, whether we were technically up or flat or slightly down wherever you would be.
But we can tell from wholesale ordering pattern that the wholesalers are kicking you off so we can infer that and we know that we know that retail has been solid it's been steady. So we can infer that the channel is clearing up in wholesale and retail will once again be hand in hand.
We can one thing we can say is that one of our biggest partners holds a lot of events at this point in year in the year.
And they have been extremely well attended and generated a lot of pull through.
We only have partial data.
But.
Yes.
Got it.
Then.
Looking at Freedom I know you've had this for three plus years, maybe a little bit longer and we've gone through.
Very nice growth nice growth cycle coming out of the pandemic, but.
What are you seeing as far as retention rates of people that either are just ramping about or deciding to trade up and actually buyable could you talk about how <unk> is helping.
That narrative.
Yes.
Good question, there's no change in retention rates they continue to be extremely strong in.
Very very strong, particularly for.
Kind of a franchise of business subscription business like this.
Yeah Freedom interestingly, when when Theres a lot of inflation around one <unk>.
Interest rates are higher freedom members prospective members are not looking at the same level of increased pricing theyre not looking at interest rates as a potential inhibitor.
Freedom becomes the comparatively.
Even more attractive.
Option.
And we have grown I think.
Quarter over quarter, 13% quarter.
Quarter.
<unk> 23 versus <unk> 22 up 13% I think about 6000.
Net members. So yes growth continues to be strong and I think potentially.
Potentially not only benefiting from the proposition that freedom presents but also the relative lack of impact of pricing and interest rates on freedom membership.
Our next question comes from the line of Garrick Johnson with BMO capital markets. Please proceed.
Great. Thank you good morning.
So you're increasing Brian youre, increasing the low end of revenue guidance. The low end of propulsion margin guidance upsizing your share repurchase so how can the bottom end of your consolidated guidance does not come up.
It's a good question Garik.
Not surprising.
Coming from you.
We are and you know us very well.
It's early in the year, we still have 90% or so of the retail season left.
We have.
Uncertain marketplace or macroeconomic environment that we're dealing with.
We simply believe that we can hit.
There are scenarios, where both ends of the range or are in play I think we're probably.
A little bit more.
Optimistic given the good first quarter, but not.
Didn't make a whole lot of sense to change the guidance when we have so much of the year left to come.
Okay. I didn't think that question was coming I figure James would ask at first but.
Yeah.
How about how about how about a softball for you Dave.
When I was at the last show the Palm Beach show looked at the Chris Craft Calypso 32.
<unk> that had dual mercury engines, <unk> touch screen Fathom power.
Can you start talking about like your content per boat from a supplier side and any metrics you can share there.
Yeah. It's a good question Gary Thank you for asking it I think we've already said that Brunswick boats about 50% of the bill of material. Now is is from our own products and brands are supplied inside the company.
And we had some of the leading brands so they set market expectations and a lot of ways and we're developing relationships and building our muscles really with how to replicate that.
And third parties Mercury because of its penetration is a fantastic foundation for that but our ability to deliver the system solutions is it.
Really important to builders, especially as the very conscious of costs.
We can do a lot of things for them.
<unk> cannot do in terms of integrated solutions.
Doing portions of their engineering.
For them. So, yes, I think what's great to see is those independent.
Customers of ours, who are trusting us to do so much now under more great customers like Chris.
Chris craft, but do it the more others do it so we're doing similar things for other.
Customers and expect to do it more and more because we're a great partner in that respect nobody else has anything like the fathom E power system fully integrated.
So we have some unique propositions I think that are going on.
Continue to make that attractive I would say you saw it in Chris craft, but you will see it I can see it more and more in the RV industry as well and as that recovers you'll.
You'll see us doing a lot more of those kind of engineering solutions outside marine too.
Yeah.
Our next question comes from the line.
Oh.
Craig Kennison with Baird. Please proceed.
Oh, hi, Thanks for taking my question I appreciate it.
Hopefully, it's not a tough one.
But it goes back to your 2022 analyst day in one of your DNA slides you had the goal in 2025.
Are your P&A business to achieve I think $3.25 billion in revenue excluding acquisitions.
You don't have the deck, but it was slide $1 43.
Just with the restatement and whatnot I'm just wondering if you can give us.
Our split between.
You have a co and your engine P&A business as you try to achieve that $3 billion to $5 billion goal and maybe what are the key drivers. If you still think that goal is attainable. We've had that question a few times.
Yes. Thank you. Thank you Craig.
A good question, obviously, we have in the third quarter, another Investor day, and we'll be trying to add more of those questions in detail at that point in time.
But if you look across.
Our P&A portfolio, obviously, theres, a real kind of confluence of a lot of factors at the moment there is.
I think.
Really strong increase versus 2019, there is this restocking.
Phenomenon that were experiencing experiencing this early in the season, we've still got weather related factors. So they're still doing a lot of a lot of time between now and 2025 to get to those kind of targets. Ryan I know if you have any more specifically I mean in terms of the two now new segments and they are basically the same.
Size of give or give or take a couple of hundred million dollars in top line. I think you would anticipate navigate to be a bit of a faster grower. That's just.
The kind of business that is more technology.
Like Dave said more channels, including Avi.
DNA has always been the steady business that continues to drive margin growth in and be very recurring and annuity based.
The CAGR there the long term target CAGR is more low to mid single digits of revenue growth. So you can envision NAPCO growing a little faster and G&A continuing to be very steady, but I don't think anyone is taking those targets off the table.
Okay. Thanks, a lot.
Thank you.
Hey, gentlemen, thank you all.
This concludes the question and answer session.
Dave back to you.
Thank you very much indeed, thank you for joining us. Thank you for your questions. As you have seen despite the extremely dynamic environment. We delivered another very strong quarter record revenue and EPS for any first quarter I.
I think having the strongest brands in the market matters, particularly at the moment and also our recent investments in products and capacity has been right on target and the most resilient parts of the market high horsepower engines premium boats technology and freedom boat club and all of those.
Present, the strengths of the market at the moment, we're also maintaining strict cost control and you have seen the restructuring actions.
Completed already in Q1 of 2023, and an advocate group, which will flow through to the rest of the year.
As Ryan said earlier relative to the question, we maintained our unusually large guidance window entirely because of the external environment.
<unk> is very dynamic.
But we have a clear path still to the upper end of that guidance range.
<unk>.
As we go through the year, we leave the upper half becomes more likely in the lower half becomes less likely we.
Didn't think it was appropriate so early in the year to adjust the guidance, but we continue to be excited for the prospects of the company and really nothing has changed about our.
Understanding of what's possible for the company in the year.
We are in the end to a large extent a product based company and you can expect some very exciting new products for all of US in Q2. So please look forward to that.
Thank you again for joining us I appreciate it very much bye for now.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
[music].
Yeah.
[music].
Okay.